New Tax Rates July 2026: What Every Australian Employee and Employer Needs to Know
Australia’s tax rates changed on 1 July 2026.
This is one of the most searched topics in the country right now. Business owners, employees, and payroll managers all want the same answer: what changed, and what do I need to do?
Here is the full picture in plain English.
What Changed on 1 July 2026
The income tax rate for earnings between $18,201 and $45,000 dropped from 16% to 15%.
This is the first of two reductions. The rate drops again to 14% on 1 July 2027.
Everything else stays the same. The tax-free threshold remains at $18,200. The Medicare levy stays at 2%. Higher income brackets are unchanged.
Who Benefits
Almost every working Australian benefit from this change.
If you earn between $18,201 and $45,000, your tax rate on that bracket is now 15% instead of 16%. That is a 1% saving on up to $26,800 of income.
For a full-time worker on $45,000, the saving is roughly $268 per year. Combined with the previous Stage 3 cuts, total savings since 2024 are closer to $2,229 per year for this income range.
Higher earners also benefit. The lower rate applies to everyone’s income up to $45,000, not just those earning under $45,000.
What Employers Must Do Right Now
This is the part that affects your payroll directly.
The ATO publishes new tax withholding tables every 1 July. Your payroll software must use the updated tables from the first pay run after 1 July 2026.
If your software has not updated, you will withhold too much from employees’ wages. They will get it back at tax time. But it means every pay slip is technically wrong until the tables are corrected.
Check your software now. Do not assume it updated automatically.
How to Check Your Payroll Software
Log into your payroll software. Look for a tax table or PAYG settings section.
Check that the table version shows 2026–27. If you see 2025–26 still loaded, contact your software provider immediately.
Most platforms Xero, MYOB, KeyPay update automatically. But automatic does not always mean instant. Verify before your first July pay run.
What About Salary Sacrifice and Annualized Salaries
If any employees have salary sacrifice arrangements, check those too.
Salary sacrifice calculations depend on gross income and tax rates. A rate change can affect how much goes into super versus take-home pay under existing agreements.
If employees are on annualized salary agreements, review whether the total still complies with their award entitlements at the new withholding rates.
What Employees Might Ask You
Expect questions from staff after their first July pay slip.
They may notice slightly higher take-home pay. The increase will be small roughly $5 to $10 per week for most workers in the affected income range.
If an employee asks why their pay changed, the answer is simple. The government reduced the tax rate on income under $45,000 from 1 July 2026.
The July 2027 Change Is Already Locked In
This is not the last change.
The rate drops again to 14% on 1 July 2027. That means another payroll software update will be required in 12 months.
Build this into your compliance calendar now. Do not wait until next July to start checking.
Frequently Asked Questions
Does the tax-free threshold change? No. It stays at $18,200 for the 2026–27 financial year.
Does the Medicare levy change? No. It remains at 2% for most residents.
Do non-residents pay the new rate? No. non-residents pay a different scale. The lowest non-resident rate is 30% from the first dollar.
What if my software withholds the old rate? Employees will receive a tax refund when they lodge. But you should still update as soon as possible to avoid ongoing errors.
Let Edulink Handle the Payroll Updates for You
Every July brings changes. Tax rates, super rates, award rates they all update at once.
At Edulink Payroll Services, we update all client’s payroll settings before the first July pay run. You never have to chase software updates or check tax tables yourself.
Edulink Payroll Services charges $750 per year, per employee covering payroll management, STP reporting, and all compliance updates.
Have more employees? Call us for a discounted rate.
📞 Call us today: 04 044 71 816
Edulink Payroll Services | Campbelltown & Greater Sydney | Call 04 044 71 816
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